As the world’s most liquid financial market, forex trading has attracted people from all walks of life eager to achieve financial freedom. Outside of hedge funds, multinational banks and institutional investor circles, there exists a thriving community of retail forex traders all around the world. As of January 2014, there were approximately 4 million retail forex traders spread globally,[1] a figure that will only increase as more people realize the financial opportunity of the $5.3 trillion a day forex market.
While many of these traders access the foreign exchange on a part-time basis, some will endeavor to become full-time traders. Before you take the plunge, it’s important to carefully weigh the pros and cons of this potentially life-changing decision.
PROS
Low costs, low barriers to entry.
One of the biggest advantages of becoming a full-time forex trader is the low barriers of entry into the market. Anyone with an online trading account and piece of ID can deposit money and start trading. Growing competition among brokers also means trading costs are lower than they’ve ever been. If you’re looking for low overhead costs, forex is as low as it gets.
You’re in control
Control is one of the main reasons why people go into business for themselves. If you want to be in full control of your trading portfolio, earnings and schedule, forex provides an excellent opportunity. Ultimately, you have the final say about what you trade, how much you trade and when you trade.
High liquidity
High liquidity essentially means one thing: You have more opportunity to make money. Forex is not only the world’s most liquid market, it’s tradeable 24 hours a day between Monday and Friday. This not only gives you flexibility, but ensures that you don’t experience price manipulation and anomalies that plague other markets.[2]
Decentralized market
Unlike other financial markets, forex trading isn’t subject to a central exchange or regulator. Trades are placed and executed with each individual broker, which is governed by a national or regional regulatory commission. In this sense, forex trading is a completely decentralized global market. Decentralization not only keeps costs low, it also ensures that external factors don’t impact the market. Unlike stocks, for example, there are no inside traders in the forex market. Every trader around the world has access to the exact same information at all times.[3]
CONS
High risk
Like any other financial market, forex trading carries inherent risk. There is absolutely no guarantee you will succeed on any given trade. While this may be acceptable when you’re trading part-time for extra cash, it’s a big risk if you decide to go at it full-time. Unlike your current 9-5 job, there’s no guarantee of a salary or hourly wage when you trade forex.
High volatility
Volatility can create more opportunities for traders, but it can just as easily wipe out their account. As a forex trader, you have no control over the factors that impact the market. Things like macroeconomic data, geopolitical developments or central bank statements are completely outside your purview. The only thing you can do is anticipate outcomes and prepare accordingly. Once again, this is a huge responsibility if you decide to earn all of your money in forex.
Complexity
Let’s be frank: forex is a very complex market if you decide to do it full-time. Not only are currency rates influenced by a myriad of factors outside your control, the task of picking and applying the best strategy can be equally as daunting. Your ability to draw reliable conclusions to base your trades on (and do it consistently) can overwhelm even the most seasoned of traders.
Bad brokers
Unreliable, unregulated brokers pop up all the time in the forex market. Most of the time, they end up going out of business within a few years. If you decide to build your entire life around forex, your relationship with your broker is extremely important. One bad experience (or one suddenly out-of-business broker) can really set you back. As a general rule, full-time traders should only work with brokers that are not only regulated, but have been in business for more than ten years.
Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose.Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).
[1] Bapi Maitra (January 2014). “State of the Retail Foreign Exchange Market.” CitiFX.
[2] Shbhit Seth (May 1, 2015). “The Pros & Cons Of A Forex Trading Career.” Investopedia.
[3] Shbhit Seth (May 1, 2015). “The Pros & Cons Of A Forex Trading Career.” Investopedia.
Speak Your Mind